FCC's Powell seeks telecom revival

WASHINGTON (CBS.MW) - The chief regulator of the U.S. communications industry vowed on Tuesday to prevent widespread financial problems from disrupting phone service for American consumers and businesses.

Michael Powell, head of the Federal Communications Commission, also asked Congress for greater authority to punish corporate misbehavior and expressed optimism that the beleaguered phone industry would recover - though not quickly or easily.

Under current law, the FCC can stop pending shutdowns in phone networks for at least 30 days. Yet that authority doesn't fully extend to the relatively new Internet "backbone" - the network of fiber cables over which Internet traffic flows.

WorldCom, which filed for bankruptcy protection earlier this month, is the world's largest carrier of Internet traffic. Its financial distress has become a big source of concern not only for consumers and companies, but also for lawmakers heading into an election season.

"If this continues ... this is going to radiate enormous damage to the American economy," said Sen. Ron Wyden, D-Ore.

Powell, however, sought to ease those concerns.

"We have had firsthand discussion with creditors and lenders, with senior WorldCom executives, and with critical WorldCom customers and government users," he said. "All are confident that there is not an imminent threat of major service disruption."

The FCC chairman offered his own six-point plan for helping the industry recover. See news release.

Tough task

Still, Powell said the FCC would need more resources and power to deter potential crises in the debt-laden communications industry. Financiers, lawmakers and executives could all lend a helping hand, he said. See: How it all happened.

Powell also pressed senators again to pass a bill that would give the FCC the authority to impose stiffer fines on phone companies that thwart the will of regulators.

By and large, the agency has targeted the Baby Bell local phone operators for violations of rules, stipulating that they open their networks to competitors at fair prices. Under the landmark 1996 Telecom Act, the FCC is entrusted with the task of opening up the local phone markets to competition.

Not surprisingly, executives of struggling long-distance carriers used the Senate hearing to blame some of the industry's troubles on the Baby Bells. They contend that they rushed to build out extensive fiber networks - taking on massive huge debt in the process - to meet projected demand for high-speed Internet access.

Yet that demand never fully materialized, long-distance executives claim, because of lack of competition in the local market. As a result, the Bells were tardy in rolling out high-speed access and then set prices too high to stimulate robust demand, they said.

John Legere, chief executive of Global Crossing, said it's much cheaper to carry a call from London to New York over a long-haul network than to actually connect a call to a customer in New York. Long-distance carriers have to pay a fee to the Baby Bells each time the local operator connects a call.

Powell indirectly gave some credence to that view in asking for authority to issue higher fines. He also said Congress would have to consider new ways to open up the "bottleneck" at the so-called last mile - the wiring connecting homes and businesses to the central offices of the Baby Bells.

Broadband or bust

The key to the industry's recovery, Powell said, lies in speedier rollout of advanced telecom services such as high-speed Internet access. Only then will excess capacity get soaked up and companies start generating enough revenue to pay down their high debt loads.

To that end, Powell gingerly suggested that the wireless and long-haul markets will also have to undergo "prudent" consolidation - with bigger and healthier carriers buying out smaller and financially weaker ones.

A weeding-out process would also reverse a downward spiral in prices that has eroded industry revenue. While Powell noted that every customer prefers to pay less, he indicated that prices might be too low for the financial well-being of the communications industry.

Mindful that many lawmakers oppose large-scale mergers or notably higher prices, Powell added the caveat that some deals could curb telecom competition and ought to be blocked.

"Regulators will have to walk a fine line to achieve stability while not squelching competitive opportunity," he said.

Roasting executives

Lawmakers, for their part, spent much of the hearing lambasting the failure of telecom-industry executives to publish accurate financial numbers. They noted that industry excesses wiped out an estimated $2 trillion in market value and cost 500,000 workers their jobs.

They also castigated the exercise of hundreds of millions of dollars in stock options granted to former executives such as Bernard Ebbers of WorldCom, Joseph Nacchio of Qwest Communications and Gary Winnick of Global Crossing.

Powell, also a military veteran, seconded Cleland's remarks. In unusually strong language, he called the actions of some executives "despicable and deplorable."

WorldCom and Global Crossing are under bankruptcy protection. The financially troubled Qwest is dangerously close, with $26 billion in debt. All three have purged previous management in their bids to recover.

"Shouldn't they be asked to give some of that money back," Sen. John McCain, R.-Ariz., asked.

Republican Peter Fitzgerald of Illinois aggressively pressed WorldCom Chief Executive John Sidgmore on whether the company would "go after" Ebbers if he fails to repay more than $400 million in company loans. Ebbers, ousted as CEO in April, is supposed to start repayment in January 2003.

"We will go after it to the full extent that we can," Sidgmore repeated several times.

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